Belgium does not have a specific tax regime aimed at attracting high net worth individuals. However, certain features of the Belgian system traditionally were and currently still are particularly attractive to high net worth individuals.
That explains why a relatively high number of foreign (especially Dutch and French) high net worth individuals and families have taken up residence in Belgium.
In the last few years, however, Belgium has significantly increased the tax burden on investment income. The patchwork of tax measures manifests a lack of long-term vision and stability and makes it increasingly difficult to navigate the Belgian tax maze. These challenges are obviously not unique to high net worth individuals, but the size and complexity of their wealth amplify the impact on them.
On the other hand, some of Belgium’s most advantageous tax features still stand today. For example, it is still possible to realise tax-exempt capital gains on privately-held assets, and income tax exemptions exist for yield realised via investment-linked insurance products.
Furthermore, Belgium has no general wealth tax. At the end of 2019 the Belgian Constitutional Court annulled the so-called Tax on Securities Accounts, Belgium’s failed attempt at a limited base wealth tax.
Moreover, even though gift and inheritance taxes exist, in most cases their effect can be mitigated through proper planning.
High net worth individuals in Belgium struggle with the tension between legitimate privacy concerns and the trend towards ever-increasing transparency. Belgium has set up an Ultimate Beneficial Ownership register and implemented the DAC 6 reporting regime. Due to the Covid-19 pandemic, Belgium has extended the federal reporting deadline until the beginning of 2021. It seems nevertheless wise to be prepared well ahead of this.
In stark contrast with the disjointed state of the Belgian tax system is the recent update of Belgian succession law, matrimonial law, property law and company law. The modernisation of the legislation in these key domains offers high net worth individuals residing in Belgium exciting opportunities to organise or reorganise their personal life and affairs, their wealth and the transfer thereof.
Combined with its excellent public health and education system, its central location in the heart of Europe, the fact that it is home to the institutions of the European Union, NATO and Shape and its very extensive double taxation convention network, Belgium remains an attractive location for many high net worth individuals.
It is clear that the export-oriented Belgian economy has been impacted by the Covid-19 pandemic. An already high public debt is now dangerously close to spiralling out of control. This is due not only to Covid-19 but also to the fact that at the federal level it has become nigh on impossible to form a government. The renowned Belgian compromise is increasingly difficult to achieve in a country where the cultural divide has also become an economic and social divide.
By the same token, and despite these challenges, the country remains very resilient. Belgium is a federal state where important powers lie with the regions. The Flemish Region - Belgium’s economic bulwark - continues to perform especially strongly and seemingly undisturbed by the standstill at the federal level.
It remains to be seen how the post-Covid-19 relaunch of the Belgian economy will be organised and financed. For the moment this is still surprisingly unclear. This is largely because at the federal level the country has been without a majority government since the end of 2018. As a result, a multitude of options are currently being discussed in the public domain. These range from the introduction of a one-time 5% Covid-19 special wealth tax for the so-called “ultra-wealthy”, to those who advocate a moratorium on tax increases to avoid capsizing the economy and everything in between.
It seems prudent to assume that the final outcome will be found somewhere in between.
While Belgium is undeniably going through some unprecedented challenges, it should not be forgotten that many, if not all, of its European competitors are experiencing the same.
Hence there is no reason to expect that Belgium is likely to become relatively less attractive to high net worth individuals when compared to its European neighbours in the foreseeable future.
In this context, it should also not be forgotten that Belgium has numerous non-fiscal features that make it particularly attractive as a home jurisdiction.
But more than ever it is clear that high net worth individuals who intend to relocate to Belgium should seek proper upfront advice. Proper pre-migration planning is a key prerequisite for a successful migration to Belgium.
Such planning includes, among other things, reviewing the possibility to secure a tax-free step up in basis (for shares in non-Belgian companies) and the potential effect of certain peculiarities of the Belgian tax and legal environment.
For example, it is of paramount importance to properly anticipate the impact of the stock exchange tax and the so-called Belgian ‘Cayman tax’. The Cayman tax is a type of Controlled Foreign Companies legislation that is applied in Belgian personal income tax whereby the income of certain low-taxed companies, foundations, trusts and insurance wrappers (commonly referred to as ‘legal arrangements’) is attributed to and taxed in the hands of Belgian resident taxpayers. In its most recent incarnation, one of the original key elements of the Cayman tax, the look-through approach, had been largely abandoned. It is now applied with respect to qualifying ‘founders’ of legal arrangements and only insofar as the legal arrangement has not distributed the relevant income to the founder or another person before the end of relevant taxable period. If no such distribution occurs, the income of the legal arrangement keeps its original qualification and is taxed accordingly in the hands of the Belgian resident. The Cayman tax regime is consistently illogical and may have draconian consequences. Its scope is extremely wide because, at least in theory, almost every entity in the world can qualify as a legal arrangement. The importance of making sure that the wealth structure of high net worth individuals or families seeking to move to Belgium is Cayman tax proof can therefore not be underestimated.
Likewise, it should be assessed whether double taxation conventions are available to mitigate double taxation issues (e.g. withholding taxes on interest and dividend income in the source state) and testaments, prenuptial and postnuptial agreements, life insurance contracts, etc., should be reviewed.